TFSA Annual Limit, Contribution Room, and Penalties for 2018/2019

This post may contain affiliate links. Please read my disclosure for more info.

The New Year (2019) will bring with it another opportunity to utilize your Tax-Free Savings Account (TFSA) and protect your investment income from taxation. If you’re 18 years old and a resident of Canada, you are eligible to start accumulating TFSA contribution room. You can choose to save or invest funds tax-free up to the maximum of your contribution room.

2018/2019 TFSA Contribution Limit and over the Years (2009 – 2019)

The annual TFSA dollar limit had been pegged at $5,500 for the past 5 years, excluding 2015 when the conservative government briefly increased it to $10,000. For 2019, the annual TFSA limit rises to $6,000 (from $5,500 in 2018)!

If you have been eligible to contribute to the TFSA since it’s inception in 2009, it means that in 2019, you will have a total contribution room of $63,500. Essentially, you can invest up to $63,500 upfront and not have to pay any taxes on the income earned on your investment.

How the Annual TFSA Limit is Calculated

The TFSA annual dollar limit is calculated by indexing it to inflation and rounding it off to the nearest $500. The government determines the indexation factor for each year from the percentage change in the average Consumer Price Index (CPI) over the previous year.

For example, to compute the limit for 2009, we multiply $5,000 by the indexation factor of 0.6% (1.006) in use that year: $5,000 x 1.006 = $5,030. This result was then rounded off to $5,000. For the 2019 TFSA limit, the indexation factor is 2.2%. As such, when we calculate the indexed TFSA limit for 2019 (i.e. $5,721 x 2.2%), we have $5,847 which is rounded off to $6,000.

﻿﻿﻿

*Inflation-adjustment was canceled for 2015 and the annual limit was pegged at $10,000.

From the table above, it’s obvious that persistent low inflation prevented the TFSA limit from increasing to the next bracket of $6,000 for several years.

2019 TFSA Unused Contribution Room

If you’ve not been contributing the maximum limit every year, it will accumulate and you’ll have ‘unused’ TFSA contribution room. Unused contribution room can be carried forward indefinitely.

Also, if you choose to withdraw funds from your TFSA in any particular year, the amount withdrawn can be re-contributed in the following year.

To calculate your total contribution for 2019:

TFSA limit for 2019 ($6,000), plus

Unused contribution room for 2018, plus

Withdrawals made in 2018.

Contribution Room Example

Let’s say Jane became eligible for TFSA’s in 2016, however, she was unable to make any contributions until the following year in January 2017, when she contributed $8,000. In September 2017, she withdrew $3,000 from her TFSA for an emergency. What is her total contribution room for 2018?

Answer:

contribution limit for 2016 = $5,500

+ contribution limit for 2017 = $5,500

– contribution made in 2017 = $8,000

+ withdrawal made in 2017 = $3,000

+ contribution limit for 2018 = $5,500

Total TFSA Room for 2018 = $11,500

For 2018, Jane has a total contribution room of $11,500.

If you’re confused about what your unused TFSA contribution room is, you can also find it on your Notice of Assessment or via My CRA Account.

TFSA Investment Options

A variety of investments can be held in a TFSA account including stocks, mutual funds, ETFs, GICs, bonds, cash, etc. Click here for sample index fund and ETF portfolios you can use in your TFSA.

If you prefer a hands-off approach to investing your TFSA funds and at a much lower fee than the average mutual fund, consider using Robo-Advisors. Robo-advisors use low-cost ETFs to build your portfolio and charge a small management fee.

I love love love the TFSA! It’s one of the best saving and investing tools that Canadians can take advantage of.

The only thing is that it’s too flexible and I know my friends who would just treat it like a checking account — just take the money out to spend on random things but never put it back (even though they swear that they would) haha!